ch06A

181)A PRIMARY consideration in assigning a cost to a responsibility center is:

A)whether the cost is fixed or variable

B)whether the cost is direct or indirect

C)who can best explain the change in that cost

D)where in the organizational structure the cost was incurred Answer: C

Diff: 3

Terms: responsibility center Objective: 7

AACSB: Reflective thinking

182)Building in budgetary slack includes:

A)overestimating budgeted revenues

B)underestimating budgeted costs

C)making budgeted targets more easily achievable

D)All of these answers are correct.

Answer: C

Diff: 2

Terms: budgetary slack

Objective: 8

AACSB: Reflective thinking

183)To reduce budgetary slack management may:

A)incorporate stretch or challenge targets

B)use external benchmark performance measures

C)award bonuses for achieving budgeted amounts

D)reduce projected cost targets by 10% across all areas Answer: B

Diff: 3

Terms: budgetary slack Objective: 8

AACSB: Analytical skills

184)A stretch budget is a budget that:

A)crosses more than one responsibility center

B)represents a challenging, but achievable level of performance

C)is impossible to implement in a cost center

D)is designed to include the effects of exchange rate fluctuations Answer: B

Diff: 2

Terms: responsibility accounting Objective: 8

AACSB: Reflective thinking

41

185)Multinational budgeting is more complex than budgeting in a domestic environment due to the possibility of:

A)exchange rate fluctuations

B)sophisticated techniques used by multinationals such as forward, future, and options contracts

C)different political, legal, and economic environments faced by multinationals

D)All of these answers are correct.

Answer: D

Diff: 2

Terms: responsibility accounting

Objective: 8

AACSB: Multiculturalism and diversity

186)Multinational budgeting is useful for everything EXCEPT:

A)comparing actual to budget in volatile conditions

B)helping managers learn and adapt to changing conditions

C)determining the impact of currency fluctuations

D)determining how well managers adapt to uncertain environments Answer: A

Diff: 2

Terms: responsibility accounting Objective: 8

AACSB: Multiculturalism and diversity

187)To prepare the cash budget, all of the following budgets are required EXCEPT:

A)capital expenditures budget

B)cost of goods sold budget

C)budgeted balance sheet

D)revenue budget Answer: C

Diff: 2

Terms: cash budget Objective: A

AACSB: Reflective thinking

188)Financial analysts use the projected cash flow statement to do all of the following EXCEPT:

A)plan for when excess cash is generated

B)plan for short-term cash investments

C)project cash shortages and plan a strategy to deal with the shortages

D)project depreciation expense

Answer: D

Diff: 2

Terms: cash budget

Objective: A

AACSB: Reflective thinking

42

189)The cash flow statement does NOT include:

A)cash inflows from the collection of receivables

B)cash outflows paid toward raw material purchases

C)all sales revenues

D)interest paid and received

Answer: C

Diff: 2

Terms: cash budget

Objective: A

AACSB: Reflective thinking

190)The cash budget is a schedule of expected cash receipts and disbursements that:

A)requires an aging of accounts receivable and accounts payable

B)is a self-liquidating cycle

C)is prepared immediately after the sales forecast

D)predicts the effect on the cash position at given levels of operations Answer: D

Diff: 1

Terms: cash budget Objective: A

AACSB: Reflective thinking

Answer the following questions using the information below:

The following information pertains to Tiffany Company:

∙Cash is collected from customers in the following manner:

∙40% of purchases are paid for in cash in the month of purchase, and the balance is paid the following month.

∙Labor costs are 20% of sales. Other operating costs are $15,000 per month (including $4,000 of depreciation). Both of these are paid in the month incurred.

∙The cash balance on March 1 is $4,000. A minimum cash balance of $3,000 is required at the end of the month. Money can be borrowed in multiples of $1,000.

191)How much cash will be collected from customers in March?

A)$47,000

B)$43,000

C)$50,000

D)None of these answers are correct.

Answer: B

Explanation: B) ($40,000 × 70%) + ($50,000 × 30%) = $43,000

Diff: 2

Terms: cash budget

Objective: A

AACSB: Analytical skills

43

192)How much cash will be paid to suppliers in March?

A)$23,200

B)$28,000

C)$44,000

D)None of these answers are correct.

Answer: A

Explanation: A) ($20,000 × 60%) + ($28,000 × 40%) = $23,200

Diff: 2

Terms: cash budget

Objective: A

AACSB: Analytical skills

193) How much cash will be disbursed in total in March?

A)$21,000

B)$25,000

C)$44,200

D)$48,200 Answer: C

Explanation: C) ($20,000 × 60%) + ($28,000 × 40%) + ($50,000 × 20%) + ($15,000 - $4,000) = $44,200

Diff: 2

Terms: cash budget

Objective: A

AACSB: Analytical skills

194)What is the ending cash balance for March?

A)($25,000)

B)$3,000

C)$3,200

D)$3,800

Answer: D

Explanation: D) $4,000 + $43,000 - $44,200 + $1,000 = $3,800

Diff: 2

Terms: cash budget

Objective: A

AACSB: Analytical skills

44

Answer the following questions using the information below:

Fiscal Company has the following sales budget for the last six months of 20X5:

Historically, the cash collection of sales has been as follows: 65% of sales collected in the month of sale,

25% of sales collected in the month following the sale,

8% of sales collected in the second month following the sale, and 2% of sales are uncollectible.

195)Cash collections for September are:

A)$71,500

B)$86,700

C)$99,500

D)$102,000

Answer: C

Explanation: C) ($110,000 × 0.65) + ($80,000 × 0.25) + ($100,000 × 0.08) = $99,500

Diff: 2

Terms: cash budget

Objective: A

AACSB: Analytical skills

196)What is the ending balance of accounts receivable for September, assuming uncollectible balances are written off during the second month following the sale?

A)$99,500

B)$48,500

C)$44,900

D)$46,500

Answer: D

Explanation: D) ($110,000 × 0.35) + ($80,000 × 0.10) = $46,500

Diff: 2

Terms: cash budget

Objective: A

AACSB: Analytical skills

197)Cash collections for October are:

A)$58,500

B)$92,400

C)$99,500

D)$88,200

Answer: B

Explanation: B) ($90,000 × 0.65) + ($110,000 × 0.25) + ($80,000 × 0.08) = $92,400

Diff: 2

Terms: cash budget

Objective: A

AACSB: Analytical skills

45

Answer the following questions using the information below:

Bear Company has the following information:

Purchases are paid for in the following manner:

10% of the purchase amount in the month of purchase 50% of the purchase amount in the month after purchase 40% of the purchase amount in the month after purchase

198)What is the expected balance in Accounts Payable as of March 31?

A)$39,068

B)$18,312

C)$2,900

D)$30,520

Answer: A

Explanation: A) ($30,520 × 0.9) + ($29,000 × 0.4) = $39,068

Diff: 2

Terms: cash budget Objective: A

AACSB: Analytical skills

199)What is the expected balance in Accounts Payable as of April 30?

A)$26,532

B)$38,740

C)$12,208

D)$17,688

Answer: B

Explanation: B) ($29,480 × 0.9) + ($30,520 × 0.4) = $38,740

Diff: 2

Terms: cash budget

Objective: A

AACSB: Analytical skills

200)What is the expected Accounts Payable balance as of May 31?

A)$11,792

B)$24,912

C)$36,704

D)$2,948

Answer: C

Explanation: C) ($27,680 × 0.9) + ($29,480 × 0.4) = $36,704

Diff: 2

Terms: cash budget

Objective: A

AACSB: Analytical skills

46

Answer the following questions using the information below:

The following information pertains to the January operating budget for Casey Corporation.

∙Budgeted sales for January $100,000 and February $200,000.

∙Collections for sales are 60% in the month of sale and 40% the next month.

∙Gross margin is 30% of sales.

∙Administrative costs are $10,000 each month

∙Beginning accounts receivable is $20,000.

∙Beginning inventory is $14,000.

∙Beginning accounts payable is $60,000. (All from inventory purchases.)

∙Purchases are paid in full the following month.

∙Desired ending inventory is 20% of next month's cost of goods sold (COGS).

201)For January, budgeted cash collections are:

A)$20,000

B)$60,000

C)$80,000

D)None of these answers are correct.

Answer: C

Explanation: C) $20,000 + ($100,000 × 60%) = $80,000

Diff: 3

Terms: cash budget

Objective: A

AACSB: Analytical skills

202)At the end of January, budgeted accounts receivable is:

A)$20,000

B)$40,000

C)$60,000

D)None of these answers are correct.

Answer: B

Explanation:

Diff: 2

Terms: cash budget

Objective: A

AACSB: Analytical skills

203)For January, budgeted cost of goods sold is:

A)$20,000

B)$30,000

C)$40,000

D)None of these answers are correct. Answer: D

Explanation: D) $100,000 × 70% = $70,000

Diff: 3

Terms: cash budget

Objective: A

AACSB: Analytical skills

47

204)For January, budgeted net income is:

A)$20,000

B)$30,000

C)$40,000

D)None of these answers are correct. Answer: A

Explanation: A) $100,000 - $70,000 - $10,000 = $20,000

Diff: 3

Terms: cash budget Objective: A

AACSB: Analytical skills

205)For January, budgeted cash payments for purchases are:

A)$14,000

B)$70,000

C)$60,000

D)None of these answers are correct.

Answer: C

Explanation: C) Accounts payable, $60,000 as stated

Diff: 2

Terms: cash budget

Objective: A

AACSB: Analytical skills

206)At the end of January, budgeted ending inventory is:

A)$20,000

B)$28,000

C)$40,000

D)None of these answers are correct.

Answer: B

Explanation: B) $200,000 × 70% × 20% = $28,000

Diff: 3

Terms: cash budget

Objective: A

AACSB: Analytical skills

48

207)Listed below are elements of the master budget. Determine whether each budget is an operating budget or a financial budget. Place an O for operating budget or F for a financial budget.

1.Capital expenditures budget

2.Cost of goods sold budget

3.Revenues budget

4.Budgeted statement of cash flows

5.Distribution costs budget

6.Marketing costs budget

7.Cash budget

8.Direct materials cost budget

9.Budgeted balance sheet

10.Budgeted income statement

Diff: 3

Terms: master budget

Objective: 3

AACSB: Analytical skills

49

208) Spirit Company sells three products with the following seasonal sales pattern:

The annual sales budget shows forecasts for the different products and their expected selling price per unit as follows:

Required:

Prepare a sales budget, in units and dollars, by quarters for the company for the coming year.

Diff: 2

Terms: operating budget

Objective: 3

AACSB: Analytical skills

50